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Steve Cohen Will Probably Earn Enough This Year To Cover His Hedge Fund's New $1.2 Billion Settlement

Federal prosecutors in Manhattan have struck a rich deal with Steve Cohen that will see his hedge fund, SAC Capital Advisors, plead guilty to insider trading charges and pay $1.2 billion in new fines and penalties, the biggest insider-trading settlement in history.

It’s a lot of money, but Cohen, who owns all of SAC Capital, will have no problem paying the bill. In fact, he probably will earn enough just in 2013 to cover the new fine and penalty announced on Monday. As part of the deal, Cohen has also agreed to have SAC stop managing outside money—it not long ago managed about $6 billion for outside investors—but the government already seemed to have won that battle when it originally indicted SAC Capital in July.

Cohen, a prominent art collector, recently has been moving to sell some of his prized paintings and sculptures, but it doesn’t seem like he needs the proceeds from these sales to cover his legal fines. At SAC, which is based in Stamford, Conn., Cohen runs an investment machine that is unique in the rich hedge fund world. More than $8 billion of the money the firm manages belongs to Cohen himself. He charges his investors a lot—a 3% management fee and a 50% performance fee. He also spends an enormous amount of money, paying Wall Street firms, like Goldman Sachs, as much as $1 billion annually for trading and finance fees, and going into this year he kept about 1,000 employees on SAC’s payroll, including some very high-priced trading talent. No other investment firm on the planet has SAC’s kind of cost structure.

Still, with net returns at SAC in the 15%-range this year, Cohen will likely earn enough in 2013 to cover the $1.2 billion legal fine SAC has agreed to pay. Forbes estimated that Cohen personally earned $1.3 billion last year after SAC posted net returns of about 13%.

Cohen’s net worth will take a bit of a hit. Including the $616 million SAC earlier this year agreed to pay in connection with the hedge fund firm’s insider-trading settlement with the Securities & Exchange Commission, Cohen is going to pay the government $1.8 billion. Nevertheless, Cohen’s net worth, which recently peaked at $9.4 billion, will remain greater than $7 billion following today’s criminal settlement between SAC and the government. Cohen’s recent $9.4 billion net worth figure reflects the fact that he has not yet paid SAC’s settlement with the SEC and it also includes his earnings from the first half of 2013.

Cohen’s ability to keep posting huge returns and compound his fortune in a big way annually, however, might be dealt a blow as he is forced to dismantle the expensive infrastructure at SAC that he clearly felt he needed to regularly score rich pay days. Cohen is also not out of the legal woods yet. He still personally faces a regulatory action from the SEC. And Cohen remains the target of a criminal investigation that on the surface appears to be dependent on whether the government can get two former SAC employees to cooperate before the government’s insider-trading trials against them begin. So far those guys have not accepted the government’s request to cooperate against their former boss.

“The agreement provides no immunity from prosecution for any individual and does not restrict the government from charging any individual for any criminal offense,” said a letter submitted to the federal court by Preet Bharara, the U.S. Attorney in Manhattan who brought the charges against SAC. “The penalties to be imposed against SAC Entity Defendants as part of the proposed global resolution are steep but fair.”

In a statement, SAC Capital said it takes responsibility for the former SAC employees who have pleaded guilty to insider-trading. “The tiny fraction of wrongdoers does not represent the 3,000 honest men and women who have worked at the firm during the past 21 years,” SAC said. “SAC has never encouraged, promoted or tolerated insider trading.”

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Mr. Cohen’s smirk is well deserved. These fines are there only to make the public think the Fed is doing something. They aren’t. No one will lose their job or go to jail, and the investors will ultimately pay the relatively small fine. The net gain from this fraud is no doubt huge. What do you think the lesson is?

The article does not tell us how much, if anything, defrauded investors will get. Personally, SAC’s actions on the Elan front cost me more than I could afford to lose yet I have no hope of recouping even 1c. If I were to hold up a convenience store for $100, I’d get 2 years in jail once apprehended. Here Mr. Cohen has been caught directing an army to steal massive amounts of money and he will not serve a single day in prison. Mr. Cohen will be allowed to keep the vast majority of the looted funds.

Is it any wonder nobody in their right minds has the any respect for the law? In this great new world, the law is only for people who can’t afford to ignore it!

Nathan, I don’t understand why you say Cohen will have no problem paying the $1.2B settlement. SAC will pay the settlement, not Cohen. In fact, the settlement will reduce Cohen’s personal tax liability since it will reduce the profits (or increase the losses) allocated to him by SAC. Am I missing something?

Cohen owns 100% of SAC and so any money it pays to the government would have otherwise belonged to him. Preet Bharara said today that no individual will be able to use to the settlement to reduce their personal tax liability.

Does that mean, if you have money,you can get away with murder and not serve a single day in jail ?!!!! Then how come, some of the other “insider trader” have to go to jail? Just a question.

Another question – how come most of the richest hedge fund managers in USA are Jewish born? Co-incidence? But I do like – all powerful,rich hedge fund managers who can avoid jail after committing serious crime.

Is Cohen still looking to go Global with a difference , as his insider trading is no different to others who are just able to shield truth with more lawyers – since 1995 and before US UK Banks brokers have profited large being inside at the beginning thanks to the Big 4 – who when they go into strategy about an idea they will be pitching others are accumulating friendly stakes up to 15 months ahead of announcements In many cases- bank in Cayman Monaco Jersey Zurich etc – when will name the big names who have pocked large bonuses thanks to such deals forgetting those high net worth investors that just profited large with their private offices